Cash and WC

Question 1

Cash flow accounting policy

Answer 1

IAS 7

Question 2

Cash flows

Answer 2

CELM

Question 3

Operating activities

Answer 3

Principle revenue production activities

Question 4

Investing activities

Answer 4

Acquisition and disposal of non-current assets and other investments not included in cash equivalents

Question 5

Financing activities

Answer 5

Result in changes in the size and composition of the equity capital and borrowings of the entity - long term

Question 6

WC affect on cash: Receivables

Answer 6

Less cash than sales would indicate, reduce cash

Question 7

WC affect on cash: Payables

Answer 7

More cash than purchases would indicate, increase cash

Question 8

WC affect on cash: Inventory

Answer 8

Where inventory increases, profit it unaffected as closing inventory is deducted from cost of sales, but cash increases as we have used it to buy the extra inventory

Question 9

Define working capital

Answer 9

The net assets used for every day activities, i.e. the cash invested in current assets less current liabiltiies

Question 10

Cash operating cycle

Answer 10

shows the length of time between payment of cash for goods and receipt of cash from their sale. i.e. the number of days for which finance is required.

Question 11

Over-capitalisation

Answer 11

there is too much working capital

Question 12

Over-trading

Answer 12

there is too little working capital

Question 13

Gearing ratio

Answer 13

a company’s long term debt compared to its equity capital / capital employed